18th Annual Workplace Class Action Report - 2022 Edition

608 Annual Workplace Class Action Litigation Report: 2022 Edition (xlv) Indemnification Issues In Class Actions Plaza Home Mortgage, Inc., et al. v. Automated Data Processing, Inc. , 2021 U.S. Dist. LEXIS 413 (S.D. Cal. Jan. 4, 2021). Plaintiff, a business that used Defendant’s timekeeping software to track employees’ hours, filed a lawsuit seeking indemnification after Defendant’s “negligently designed and implemented payroll software” allegedly resulted in legal liability for Plaintiff. Id. at *2. Namely, Plaintiff claimed that it did not properly account for its employees’ missed meal breaks because Defendant’s payroll software failed to recognize the need to pay premiums for these missed meal breaks. Shortly after Plaintiff discovered its payroll issue, it was sued in a wage & hour class action asserting violations of California Labor Code. Plaintiff subsequently filed an action against Defendant alleging several causes of action, including: (i) breach of contract; (ii) express indemnity; (iii) equitable indemnity; (iv) unfair competition in violation of § 17200 of the California Business & Professions Code; and (v) declaratory relief. Id. Defendant filed a motion to dismiss, which the Court granted in part and denied in part. With respect to the breach of contract claim, Defendant contended that Plaintiff had no right to indemnification because Defendant’s conduct was not willful or negligent. Rather, according to Defendant, “Plaintiff’s own failures have exposed Plaintiff to potential liability.” Id. at *10. To that point, though, the Court highlighted the parties’ contract, which provided that, in order to seek indemnification, Plaintiff needed to send Defendant a litigation hold notice and put it on notice of potential legal liability. Since Plaintiff performed these actions and the contract was “complete, clear, and unambiguous on its face” regarding Plaintiff’s obligations to Defendant, the Court reasoned that Plaintiff’s breach of contract claim should proceed. Id. The Court applied analogous reasoning to Plaintiff’s express indemnity, equitable indemnity, and declaratory relief claims, i.e. , because Plaintiff satisfied its obligations under the agreement and sufficiently alleged that Defendant negligently and/or willfully breached the agreement, the Court rejected Defendant’s attempt to dismiss these claims as well. Finally, regarding Plaintiff’s unfair competition claim, Defendant argued that Plaintiff “failed to allege facts sufficient to show unlawful or unfair conduct or unfair, deceptive, untrue, or misleading advertising by Defendant.” Id. at *29. Since Plaintiff did not oppose Defendant’s motion as to this count, the Court granted the motion to dismiss Plaintiff’s unfair competition claim. Therefore, the Court granted in part and denied in part Defendant’s motion to dismiss. Sanchez Oil & Gas Corp., et al. v. Crescent Drilling & Production, Inc., 2021 U.S. App. LEXIS 22680 (5th Cir. July 30, 2021) . Plaintiff, an oil and natural gas site management company, engaged Defendant to provide wellsite consulting services relating to its operations. The parties executed a Master Services Agreement ("MSA") wherein Defendant agreed to provide skilled labor to Plaintiff. The MSA controlled and governed all services performed by Defendant for Plaintiff where Defendant entered into contracts with various individuals for their consulting services, and dispatched them to Plaintiff’s wellsites. Per the MSA, Plaintiff paid Defendant for services rendered and, in turn, Defendant paid the subcontractors a percentage of that fee. Defendant agreed to comply with all federal, state and local laws including the Fair Labor Standards Act ("FLSA"), and also to protect, defend, indemnify, and hold harmless Plaintiff from any and all claims resulting from Defendant’s breach of these agreements. The MSA also provided that Defendant shall at all times be an independent contractor and that no subcontractor shall be deemed to be the employee, agent, servant, representative or invitee of Plaintiff. A subcontractor who performed a variety of roles for Plaintiff, ranging from Production Foreman to Flowback Supervisor, brought a class action against Plaintiff for alleged violations of the wage & hour laws. Plaintiff ultimately entered into a settlement agreement with the subcontractor as to his FLSA claims and sought indemnification from Defendant, who had hired the subcontractor. Plaintiff filed a third-party complaint against Defendant alleging: (i) breach of contract for Defendant’s failure to indemnify after Defendant refused to indemnify Plaintiff; and (ii) failure to comply with the FLSA. The parties cross-moved for summary judgment and the District Court denied Plaintiff’s motion and granted summary judgment in favor of Defendant. On Plaintiff’s appeal, the Fifth Circuit reversed and remanded. The Fifth Circuit held that the District Court erred in granting summary judgment for Defendant on the basis that Plaintiff did not comply with the MSA’s indemnification procedures. In so ruling, the Fifth Circuit agreed with Plaintiff’s reading of the parties’ MSA in that, in order for Plaintiff to obtain indemnification for the settlement and its defense costs for the lawsuit, Plaintiff was required to prove that the subcontractor’s suit resulted from Defendant’s breach of its duty to pay the subcontractor in accordance with the FLSA. The Fifth Circuit found that it was necessary to decide whether the subcontractor was an independent contractor or otherwise exempt from the FLSA, and thus, the District Court erred where it failed to resolve the issue of the subcontractor’s employee status. According to Plaintiff, the subcontractor was an "employee" of Defendant for FLSA purposes based on the "economic reality" test, and Defendant failed to